Can I Stop A Franchise Termination? – Part 1

Video Transcription

My name’s Jeff Goldstein from the Goldstein Law Group in Washington D.C. We represent franchisees in lawsuits against their franchisors in states around the country. We also do counseling and negotiations on behalf of franchisees, distributors, and dealers. We’ve been talking in our first tape about what a franchisee should do when he receives a termination notice. We also discussed how many times suing for damages and waiting a year or two to collect in court isn’t the most advantageous way to go for a franchisee in a termination context. We also discussed that in appropriate circumstances, a franchisee would want to seek a preliminary injunction, which we described also as an extraordinary remedy, something very difficult under the law to always get and it happens in fast order very quickly, go to court in a very urgent time frame, requesting that the court stop the termination before it takes place.

We also discussed the concept that in so doing you’ve gotta meet additional requirements that are far more rigorous than just showing damages or that the franchisor acted wrongfully. We discussed the idea that pure business lost by itself under most court decisions isn’t going to carry the day. You’re gonna need to show something that’s considered irreparable harm, and that’s one of the first prongs under a preliminary injunction relationship. So a franchisee lawyer is gonna grab at anything that he can to show irreparable harm. A franchisor lawyer is gonna argue, “Hey, you can compensate this guy, even if our franchise termination is wrongful, you can still compensate this guy by paying him the value of the business.” Many times franchisees aren’t interested, as I say, getting money in a year or two down the line and maybe longer, if there’s an appeal in court. They wanna stop the termination.

So what we have to do as a franchisor lawyer is show irreparable harm, whether that’s the loss of customers, the loss of the suppliers, the loss of good will. These are things that you’re gonna argue can’t be compensated in monetary terms. Now, some courts have reached out on behalf of franchisees and focused for instance on a factor that one of the largest customers that’s gonna be terminated under a particular franchisor fiat would be sufficiently large to damage the rest of the franchisee’s business. And some courts will look for something unique that they can put the label of irreparable harm. In retrospect, over many years, it really comes down to a labeling game, and nobody’s going to admit this, but it’s a labeling game as to what you can grab and put under the moniker of irreparable harm and the court’s not gonna get bad indigestion. And whether that’s gonna be too many customers who aren’t gonna get goods and it’s really going to affect the economy, whether it’s gonna be suppliers who themselves might be put out of business if you’re no longer a customer, whether it’s employees and it’s around Christmas time, these are factors that are difficult to look at upfront to gauge with any degree of certainty as to how they’re gonna come out. But there are certainly things that a franchisee lawyer would grab onto. As I say, a preliminary injunction is considered an extraordinary remedy, and you’ve gotta jump through all these hoops to begin with, and the first one is that labeling game of pointing out that whatever’s gonna happen to you as the franchisee is going to be irreparable, irreparable in the sense that you cannot monetize it, you can’t put a dollar figure on it.

So what we’re gonna look at in our next tape, is the additional components and the additional factors that a franchisee lawyer will focus on with you if you’re in a termination context. My name’s Jeff Goldstein from the Goldstein Law group. Take a look at my other tapes on this issue as well as my other tapes on other subjects. If you have a question, please give me a ring, 202-293-3947. Thanks.

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Jeff, I am amazed that you were able to get the liquidated damages down that low, which allowed us to avoid bankruptcy. Until we retained you we had been dealing with hotel consultants who appeared to make little head-way in lowering the liquidated damages.